Joseph buys a Jeep for $60 000, financing it with a five-year 6.5% APR loan paid monthly. He decides to pay an extra $50 per month in addition to his monthly payments. Approximately how long will he take to pay off the loan under these conditions?
A)4 years, 9 months
B)4 years, 4 months
C)4 years, 10 months
D)4 years, 6 months

Question

Quizplus · Accepted Answer

Paying extra on a loan reduces the principal faster, thus shortening the loan term. The exact calculation would require a loan amortization formula, but generally, paying more than the required monthly payment on a loan with interest leads to a significant reduction in the loan term. Given the options, 4 years and 9 months is a reasonable estimate for the time it would take to pay off the loan with an additional $50 payment each month.

Joseph Buys a Jeep for $60 000, Financing It with a Five-Year